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Could the German election deliver a surprise result?

By HiFX   /     Aug 10, 2017  /     Money Matters  /     , , , , , , , , , ,

With a political system designed to ensure balance and stability, German politics tends to remain fairly free from surprises. Despite doubts about the reliability of opinions polls after the unexpected election results in the UK and USA recently, it is reasonable to expect German politics to remain relatively uneventful. But with national elections due to be held on 24th September, there is some uncertainty on the German political scene.

How does it work?

Germany’s complex voting system aims to balance a desire for choosing a local candidate with a system of proportional representation to ensure that parties are represented according to their vote share. As a result, it is rare for a party to win with an absolute majority and they are usually required to form coalitions.

One of the most common scenarios is the current coalition between Germany’s two largest parties, the centre-right Christian Democratic Union (CDU) and the centre-left Social Democratic Party (SPD). Recent coalitions have also involved the liberal Free Democratic Party (FDP) and the Greens.

But if smaller populist parties such as the Left party or the Alternative for Germany (AFD) rise in popularity, it could cause complications for coalition negotiations.

Can Merkel win a fourth term?

The CDU is currently in power, as it has been for much of the time since World War Two, often with the support of its Bavarian sister party, the Christian Social Union (CSU). Its leader, Angela Merkel, has been Chancellor of Germany since 2005. If she is successful in September, she would be only the second Chancellor to serve four terms in post-war times.

For much of that time, Merkel has enjoyed very high approval ratings. Her ratings dipped in late 2015, when she welcomed around a million asylum seekers into Germany. However, recent figures suggest she is regaining popularity, perhaps because she is viewed as a safe pair of hands in an uncertain global political climate.

Could Schultz revive SPD’s fortunes?

The SPD’s candidate for Chancellor is Martin Schulz, the former president of the European Parliament. A well-known supporter of the EU, he has pledged to pursue the creation of a United States of Europe if he gains power.

Despite an initial surge in popularity, Schultz was dealt a serious blow by Merkel’s CDU in May’s state elections in the historic SPD stronghold of North Rhine Westphalia. The CDU’s victory there was widely seen as a suggestion that Merkel’s popularity could be strong enough to take her to a fourth term as Chancellor.

Will anti-EU sentiment be reflected in the polls?

Both the CDU and the SPD want to strengthen relationships within the European Union. This follows on from the recent election of Emmanuel Macron, who describes himself as pro-European but believes that reform is required within the EU. Both Merkel and Schultz are keen to be seen as the candidate who can provide stability in Europe on a “Franco-German axis”.

Nearly all of the main parties in Germany are pro-European and support some degree of further European integration. The main exception is the AfD. Founded as an anti-Euro party in 2013, it has more recently turned its attention to immigration and Islam. This approach helped to boost its popularity in 2016, when Angela Merkel’s immigration policy was under scrutiny, but appeared to lose this momentum in early 2017. Nevertheless, with MPs in nine of Germany’s 16 state parliaments, the AfD is hoping to acquire its first seats in the national government this year.

Recent opinion polls place the parties as follows:

  • CDU/CSU: 38.4%
  • SPD: 24%
  • Left: 9.2%
  • AfD: 8.5%
  • FDP: 8.2%
  • Green: 7.3%

This suggests that the CDU is likely to be the largest party following the election. But the country’s intricate system of proportional representation means that the smaller parties could hold significant influence in securing a coalition, a process that can take several weeks.

What does this mean for the Euro?

Elections in general tend to cause uncertainty, which can have a weakening effect on a currency. Earlier this year, the Euro dropped against the Pound and the US Dollar in the run-up to the French election, but strengthened again when Macron won against Marine Le Pen. It is possible that we could see similar volatility as the German election draws closer, particularly if there is uncertainty around potential coalitions.

But whatever happens next, HiFX is here to help with your international money transfers. We have a range of currency tools and rate alerts to help you monitor market movements. If you’d like to make a transfer, our online transfer service is available 24 hours a day, seven days a week. We also have a range of options that could help you to manage your money in a volatile market or to protect your business from currency risk. To find out more, please contact us.


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